Tocqueville’s Sellecchia: Proceed with caution

At current valuation levels, the stock market needs to be approached with caution and patience, according to Vince Sellecchia, manager of The Select Fund Ticker:(DESYX).
While Mr. Sellecchia is far from ready to sit on the sidelines, he has increased the fund’s cash weighting to 15%, reflecting his concerns regarding how far some stocks have run over the past several months.
“Right now, we’re seeing valuations that may be running ahead of where they should be, with a lot of stocks trading as if investors are expecting a very strong 2011 and 2012,” he said.
Mr. Sellecchia, who manages the fund along with Dan Wang and J. Dennis Delafield at Tocqueville Asset Management LP, runs just $45 million in the strategy, which was launched in September 2008. Overall, Tocqueville has $10 billion in assets.
So far this year, the fund has gained 30.3%, which compares with a 17.1% gain by its benchmark Russell 2500 Index.
Last year, the fund was up 61.1%, while the benchmark gained 34.4%.
The portfolio, which comprises only about two dozen names, is managed to be concentrated and tax-efficient, with a special-situation objective that is “very focused on risk,” Mr. Sellecchia explained.
“We’re here to generate long-term capital gains, and in our view, things are getting rich,” he said. “And if you’re worried about things’ getting pricey, you should be doubling your efforts to focus on the valuations in the portfolio and values overall.”
One example of where Mr. Sellecchia sees a situation he likes is Stanley Black & Decker Inc. Ticker:(SWK).
The company was formed through the recent merger between Stanley Works and Black & Decker, but Mr. Sellecchia originally invested in Stanley after the stock got beaten down to close to $20 more than four years ago.
“They had good cash flows, good brands, but they were missing earnings,” he said. “We decided to get in.”
At more than $60 a share, Stanley B&D stock is up 19.5% so far this year.
“The Black & Decker merger made enormous sense,” he said. “The deal creates $350 million worth of synergies in the combined company.”
The bottom-up stock-picking strategy has been underweight financial sector stocks “because it’s hard to know what’s inside those banks’ portfolios these days,” Mr. Sellecchia said.
Health care sector stocks are also not favored, mostly due to valuation levels, he said.
“We like basic American industrial cyclical companies,” he said. “And we look for situations where there is a positive change going on.”
Mr. Sellecchia likes to describe his fund as “very eclectic” and he makes no apologies for his cautious outlook.
“Everybody has a different take on the market, and we could be totally wrong and that cash would hurt us,” he said. “But our stock selection will help us.”

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